These short sale information facts are designed to help you understand how a bank determines if you qualify for a short sale. If you’ve ever driven in most neighborhoods or scanned various online real estate “For sale” ads, you have no doubt seen the, “Short Sale” ads popping up in numerous communities. What is a Short Sale in layman’s terms please?” In a nutshell, when it comes to real estate, this type of transaction becomes a consideration when a homeowner owes more on a property than what the property will sell for on the open market.
Short Sale Information and Negative Equity – For example, let’s say a homeowner owns a home that appraised at $239,000.00 when he bought it five years ago. However, five years later, it’s appraising at $165,000.00. He currently owes a first mortgage of $198,000.00 and a second mortgage of $25,000.00, bringing his balance to a total of $223,000.00. That means he is upside in the house by $58,000.00. Or as it is often called, “Negative equity.” The bottom line is; he owes more on the home than it is worth.
How In The World Can That Happen? – Here’s a common scenario answer; let’s say he bought the property when credit was real loose and it was walk in the part to get financing and then immediately turn around and add a second mortgage.
If you recall, five years ago, a lot of homebuyers were recipients of over inflated appraisals. They could have been buying a house that was only worth $159,500.00, but they’d get an appraisal at $239,000.00. Regrettably, people bought homes like that by the truckloads: over inflated appraisals and easy credit.
Short Sale Information and Smart Home Buyers – They never considered what would happen if the market bottomed out or if we hit an economic recession. When things took a nosedive, these negative equity homeowners were some of the first to feel the heat!
Because they are upside down with the equity, they aren’t going to find any buyers on the open market. Let’s face it; in this market, no smart home buyer is going to pay full price for a property. So the expectation that they would pay more than the property is worth borders on insanity.
Don’t Let This Short Sale Information Shock You! – In these instances, this type of sale is probably the best route for all parties involved. In a short sale, the bank or lender agrees to accept an amount less than the actual loan balance, “As payment in full!”
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